Cyprus Company Formation / Registration / Incorporation

GENERAL INFORMATION:

Cyprus, officially the Republic of Cyprus, is a Eurasian island country, member of the European Union, in the Eastern Mediterranean, east of Greece, south of Turkey, west of Syria and north of Egypt. It is the third largest island in the Mediterranean Sea.

The earliest known human activity on the island dates back to around the 10th millennium BCE. Archaeological remains from this period include the well-preserved Neolithic village of Khirokitia, which has been declared a World Heritage Site by UNESCO, along with the Tombs of the Kings. Cyprus is home to some of the oldest water wells in the world, and is the site of the earliest known example of feline domestication. At a strategic location in the Middle East, Cyprus has been occupied by several major powers, including the empires of the Hittites, Assyrians, Egyptians, Persians, Rashidun and Umayyad Arab caliphates, Lusignans, Venetians, and Ottomans. Settled by Mycenean Greeks in the 2nd millennium BCE, the island also experienced long periods of Greek rule under the Ptolemaic Egyptians and the Byzantines. In 333 BCE, Alexander the Great conquered the island from the Persians. The Ottoman Empire conquered the island in 1571 and it remained under Ottoman control for over three centuries. It was placed under British administration in 1878 until it was granted independence in 1960, becoming a member of the Commonwealth the following year.

In 1974, following 11 years of intercommunal violence between Greek Cypriots and Turkish Cypriots, an attempted coup d’état by Greek Cypriot nationalists and elements of the Greek military junta with the aim of achieving enosis (union of the island with Greece) took place. Turkey used this as a pretext to invade the northern portion of the island. Turkish forces remained after a cease-fire, resulting in the partition of the island; an objective of Turkey since 1955. The intercommunal violence and subsequent Turkish invasion led to the displacement of hundreds of thousands of Cypriots and the establishment of a separate Turkish Cypriot political entity in the north. These events and the resulting political situation are matters of ongoing dispute.

The Republic of Cyprus has de jure sovereignty over the island of Cyprus and its surrounding waters, except for the British military bases of Akrotiri and Dhekelia. The Republic of Cyprus is de facto partitioned into two main parts; the area under the effective control of the Republic of Cyprus, comprising about 59% of the island’s area, and the Turkish-controlled area in the north, calling itself the Turkish Republic of Northern Cyprus and recognised only by Turkey, covering about 36% of the island’s area.
Cyprus is the third most populous island in the Mediterranean Sea and one of its most popular tourist destinations. An advanced, high-income economy with a very high Human Development Index, the Republic of Cyprus was a founding member of the Non-Aligned Movement until it joined the European Union on 1 May 2004. On January 1 2008, Cyprus joined the Euro.

The Cypriot economy is prosperous and has diversified in recent years.[83] According to the latest International Monetary Fund estimates, its per capita GDP (adjusted for purchasing power) at $28,381 is just above the average of the European Union.[84] Cyprus has been sought as a base for several offshore businesses for its highly developed infrastructure. Tourism, financial services, and shipping are significant parts of the economy. Economic policy of the Cyprus government has focused on meeting the criteria for admission to the European Union. The Cypriot government adopted the euro as the national currency on 1 January 2008.

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The Republic of Cyprus enjoys a strategically beneficial location at the intersection of the traditional shipping routes between Europe and the continents of Asia and Africa. It is the third largest island in the Mediterranean Sea after Sicily and Sardinia.

It covers an area of 9,251 sq km, has a population of about 800,000, and lies 96 km west of Syria, 300 km north-west of Israel, 385 km north of Egypt and about 980 km south-east of Athens, Greece. The capital of Cyprus is Nicosia with a population close to 300,000. The language of Cyprus is Greek with English being widely spoken.

The lovely Mediterranean island enjoys the benefit of full European Union membership. For many years now it has also managed to successfully develop strong links with central and eastern european countries, particularly Russia and other CIS countries.

Cyprus enjoys a wide network of Double Tax Treaties and is, therefore, a dominant player for tax planning structures. It is a prosperous financial centre with an open free market economy. The government of Cyprus has implemented significant corporate tax incentives.

Indeed it boasts the lowest corporate tax rate in Europe. Cyprus has the advantage of about 40 Double Tax Treaties. This is quite unusual for a low tax jurisdiction. In mid 2002, as part of the Income Tax Act, the House of Representatives approved a uniform 10% corporate tax rate to apply to all legal entities registered on the island, thereby eliminating any distinction between onshore and offshore companies (owned by non resident persons).

Furthermore, Cyprus is renowned for its efficient, stable, and reliable banking system and effective professional sector, both audit and legal.

Some of the main factors and advantages that developed Cyprus into a successful international business and financial centre and secured Cyprus’ attractiveness to international businesses and worldwide investments are the following:-

10% corporate tax rate for business profits;
No withholding taxes imposed on dividends, interest, and royalties for non-residents (whether a company or an individual);
Income from dividends is exempted from income or corporation tax;
Exemption from income or corporation tax of gains made by an individual or company resident of Cyprus from the sale of securities;
The attractive platform and tax regime that Cyprus provides for a holding company (subject to certain conditions, full exemption from local taxation in respect of dividends received by a holding company from its local and foreign subsidiaries);
The attractive platform and tax regime that Cyprus provides for International Trusts;
The network of favourable Double Taxation Treaties (DTT) that Cyprus maintains with about 40 countries;
Tax advantages available to non-residents including non – E.U. residents;
Cyprus does not have any rules stating that holding companies cannot perform operating activities;
Cypriot tax regime permits losses to be carried forward indefinitely;
The highly developed and secure banking system;
Availability of high quality accounting and consulting services;
The U.K. Company Law heritage/common law tradition;
The geographic location of Cyprus, located at the crossroads of Europe, Asia, and Africa;
The English language being widely known and used in Cyprus.

Cyprus became an independent sovereign republic in 1960 after 82 years of British Rule on the island and under its Constitution it has a presidential system of government. The economy of Cyprus is based on the free market system with the private sector forming the backbone.

Cyprus offers a high standard of living, it has a well developed and highly organized banking system and a well trained and highly skilled workforce as it has a large number of university graduates and persons with professional qualifications.

In the last 30 years Cyprus has developed into a reputable international business and financial centre due to the very favourable tax regime that the island offers. The admission of Cyprus to the European Union (EU) as full member in May 2004, established Cyprus as a prestigious, stable, and attractive jurisdiction. The EURO replaced the Cyprus Pound, thus becoming the island’s currency, on January 1, 2008, further integrating the island’s economy to that of the EU’s core economies.

Though the offshore company status was abolished as from January 1, 2003, the favourable tax regime for the international investor has been maintained. In addition, the liberalization of investments coming from non-EU countries and the abolition of maximum and minimum participation percentages in investments in all the sectors of the economy in October, 2004 (with some exceptions), has transformed Cyprus into a major destination for the location of international holding companies and worldwide investments.

The tax advantages Cyprus offers may be enhanced when, under certain circumstances, are combined with those of other jurisdictions’ in appropriate legal structures. Contact us to provide you with a free consultation regarding your individual circumstances.

International Business Companies

Advantages of International (Offshore) Legal Entities:

In simple terms, an International Business Company (‘IBC’, also known as Offshore company) is a Standard Limited Liability company which is used as a tool, by corporations and individuals through out the world to direct profits out of high tax countries and into specific jurisdictions or international financial centres, thus taking advantage of their low or zero tax regimes and their double tax treaties. The beneficial ownership and business activities of the international (Offshore) enterprise are usually outside the country of its registration.

Usefulness of International Business Companies:

There are many business activities which are best suited to be operated through an international entity. Below are some examples of such activities. In this case, a Cyprus registered IBC is assumed:

(a) Exports: If you export products to a third country, you may issue invoices via Cyprus. Therefore, you can pay less tax to your home country because the Cyprus Company buys at a lower cost and sells at a higher price. In Cyprus, you only have to pay 10% tax on your profits. You do not have to send the products via Cyprus – instead, you can deliver them directly;

(b) Imports: If you import products from third countries, you may issue invoices via Cyprus: In doing so, you pay less tax to your home country because the Cypriot company sells at a high price. Thus the profit which must be taxed in your home country is reduced. The profit in Cyprus is only taxed at 10%. You do not even have to send goods via Cyprus – your supplier can deliver directly to you;

(c) International trading (an international company can be used as intermediary to re-invoice exports and imports such as consulting to be provided by the Cyprus entity to a company in another country for a fee thus reducing the taxable profit of the paying company;

(d) International services companies (re-invoice services through an international company);

(e) International construction and/engineering companies;

(f) International transport/distribution companies;

(g) Royalty companies;

(h) Real estate companies;

(i) Shipping and ship management companies;

(j) Commission agents;

(k) E-business;

(l) Holding companies (receiving dividends from foreign subsidiaries);

And many other uses. Please go to Question 1 of our FAQ section for additional information.

CORPORATION TAX

Basis

Corporation tax is imposed on every legal entity which is a tax resident of Cyprus on its worldwide income. A company is considered to be a tax resident of Cyprus if it is managed and controlled in Cyprus.

Non- tax residents of Cyprus are only taxed on their income that is accrued or derived from a business activity which is carried out from a permanent establishment in Cyprus.

Tax rate: 10%
Some types of income exempt from taxation:
Type of income
Dividends
Profits from the sale of securities
Interest income (under certain conditions)
Profits of a permanent establishment abroad
Exemption limit
The whole amount
The whole amount
50%
The whole amount (conditions apply)

SPECIAL CONTRIBUTION FOR DEFENCE FUND

Special contribution for defence fund is only imposed on income earned in Cyprus by tax-residents of Cyprus. Non-tax residents are exempt of the special contribution for defence fund.

Tax Rates:

Type of Income Persons Companies

Dividend income from CY- resident companies

Dividend income from non-Cyprus resident companies*

Interest income (under certain conditions)

Interest income earned from savings certificates and development stock issued by the government

Interest income earned from the ordinary activities in the course of business or closely related to the ordinary activities of the business

Rental income

Note: – Dividend income from abroad is exempt from the special contribution for defence fund provided that the company receiving the dividend owns at least 1% of the company paying the dividend. This exemption does not apply if more than 50% of the paying company’s activities result directly or indirectly in investment income and the foreign tax burden on the income of the non-resident company paying the dividend is substantially lower than the tax burden of the company which is tax-resident in Cyprus.

Credit against foreign tax withheld

Any foreign tax paid on income that is subject to the defence tax can be credited against the defence tax liability irrespective of the existence or not of double taxation treaty.

Deemed dividend distribution

Tax-resident companies not distributing a dividend within 2 years from the end of the tax year are liable to 15% defence tax on 70% of their accounting profits.

Profits attributable to non-tax residents are not subject to the deemed distribution.

Capital Gains TAX

Capital gains tax is imposed at the rate of 20% on gains from the disposal of immovable property situated in Cyprus including gains from the disposal of shares in companies which own immovable property in Cyprus and not listed in any recognized stock exchange.

Estate Duty

No estate duty.

Tax Treaties

Cyprus has signed tax treaties with the following countries:

Armenia India South Africa
Austria Ireland Sweden
Belarus Italy Syria
Belgium Kuwait Tajikistan
Bulgaria Kyrgyzstan Turkmenistan
Canada Malta Thailand
China P.R Mauritius United Kingdom
Czech Republic Moldova United States
Denmark Norway Uzbekistan
Egypt Poland Yugoslavia
France Romania
Germany Russia
Greece Slovak Republic
Hungary Singapore

Note: Management and control in Cyprus is a prerequisite for obtaining advantages under Cyprus double tax treaties as only in such cases is the company treated as resident of Cyprus for Treaty purposes.

Trusts have been very important tax planning devices.

International trusts are governed by the International Trust Law of Cyprus, 1992. International trusts are not taxed in Cyprus and enjoy important tax advantages. The Law defines an International trust as a trust where both the Settlor and the Beneficiaries (unless a charitable institution) are non-residents of Cyprus and the trust property does not include immovable property situated in Cyprus. The Law prescribes that at least one of the trustees is a permanent resident of Cyprus.

The most common types of trust are the discretionary trust where the trustees have the power to decide any distribution of income or capital to the beneficiaries and the fixed trust where the trustees must distribute the income and the capital to the beneficiaries in specified proportions.

Some of the tax and other advantages are the following:-

All income whether trading or otherwise of an international trust is not taxable in Cyprus;
An individual can invest overseas using an international trust so that dividends will not be remitted in his country;
An individual can protect his property from future lawsuits, future bankruptcy and other claims by creditors.